Nifty 100 vs Nifty Midcap 150: Which index should you pick for long term?

When it comes to long-term investments, selecting the right index is crucial for ensuring both returns and portfolio stability. The debate between the Nifty 100 and the Nifty Midcap 150 indices has garnered considerable attention among industry experts, each offering distinct perspectives on which index presents a superior investment opportunity over the next five to ten years. Although both indices have their advantages, the ultimate decision hinges on an investor’s risk tolerance and financial objectives.

Index Price Trends: A Comparative Analysis

Before diving into expert opinions, it’s essential to examine the recent price trends of these indices, which have both outperformed the benchmark Nifty in 2024 so far.

Year-to-Date (YTD) Performance

In 2024, the Nifty Midcap 150 has emerged as the stronger performer, gaining over 28 percent, compared to a 20 percent rise in the Nifty 100. During the same period, the benchmark Nifty increased by 16 percent. Interestingly, the Nifty 100 delivered positive returns in all eight months of 2024, while the Nifty Midcap 150 has been in the green for six of those months.

One-Year Performance

The trend of outperformance has continued over the past year. The Nifty Midcap 150 has rallied an impressive 48 percent, significantly outpacing the Nifty 100, which surged over 35.5 percent. In comparison, the benchmark Nifty rose by 30 percent during the same period, making the midcap index the clear winner.

Long-Term Performance

Over the last three years, the Nifty Midcap 150 has delivered multibagger returns, surging by 110 percent. Meanwhile, the Nifty 100 has grown by 53 percent, slightly outperforming the Nifty index, which gained 49 percent. This data highlights the midcap index’s potential for higher returns over the long term, albeit with higher volatility.

Which Index Offers Better Long-Term Investment Opportunity?

Nifty 100: Stability and Consistent Returns

Trivesh D, COO of TRADEJINI, advocates for the Nifty 100 index as a more reliable option for long-term investors. Historically, the Nifty 100 has delivered returns ranging between 12 percent to 15 percent, outperforming fixed deposit rates and offering a stable investment avenue. Trivesh highlights that while the index may not reach record highs in the immediate future, it is expected to perform well over the long term, making it a safer bet for conservative investors.

Trivesh also points to the potential of emerging indices like the Nifty Next 50 and Nifty EV, which comprise stock from innovative companies. These indices could yield promising returns in the coming years, further enhancing the attractiveness of large-cap investments.

Nifty Midcap 150: High Risk, High Reward

On the other hand, Aiyub Yacoobali, Chairman and Managing Director of South Gujarat Shares And Sharebrokers, prefers the Nifty Midcap 150. Yacoobali notes that the midcap index offers a higher return potential, albeit with greater risk. Technical charts suggest that the Nifty Midcap 150 could reach targets of 26,000, with the Nifty Midcap potentially rising to 64,000–72,000. Despite trading at high price-to-earnings (PE) ratios, Yacoobali expects minor short-term corrections but believes that long-term prospects remain robust.

Yacoobali’s analysis underscores the fact that while midcap stocks are currently overvalued, they have historically provided substantial returns during market upswings. Investors with a higher risk appetite may find the Nifty Midcap 150 a compelling option.

Expert Opinions: Balancing Risk and Returns

The choice between the Nifty 100 and the Nifty Midcap 150 is not clear-cut. Nishit Master, Portfolio Manager at Axis Securities PMS, emphasises the importance of aligning index selection with the investor's risk profile. For low-risk investors, the Nifty 100, comprising large-cap companies, is a prudent choice. Conversely, those willing to take on more risk might opt for the Nifty Midcap 150, which offers higher returns and greater volatility.

Deepak Jasani, Head of Retail Research at HDFC Securities, suggests a balanced approach, advising investors to allocate funds to both indices based on their risk tolerance. Historically, the Nifty 100 has provided portfolio stability, while the Nifty Midcap 150 has generated alpha. Jasani recommends a 40:60 allocation in favour of the Nifty Midcap 150 for a medium-risk investor, highlighting the index’s superior performance during market upswings.

Atul Parakh, CEO of Bigul, also supports a diversified investment strategy. He notes that current market sentiments suggest a continuation of record highs into 2024, driven by positive economic indicators and sustained investor confidence. For those focused on long-term growth and capable of weathering volatility, the Nifty Midcap 150 presents an appealing investment opportunity. Meanwhile, the Nifty 100 remains a solid choice for those seeking stability with moderate returns.

Vishal Bajaj, Director, Wealth, Client Associates, advises investing by way of SIP in an index suitable for a passive investor or, at best, splitting investments equally in both indices. Experienced investors actively involved in markets can follow a rebalancing model and be overweight in an index which is relatively undervalued.

Anoop Vijaykumar, Head of Research at Capitalmind, notes that while the Midcap150 index has enjoyed exceptional performance over the past five years, largely due to earnings growth, it tends to underperform during periods of broad market weakness. This contrasts with the Nifty100 index, which has a longer track record through various market cycles. Investors have access to both indices, but it's crucial to understand that the Nifty100 index funds have experienced more market ups and downs than the Midcap150 funds. Rather than viewing the indices as mutually exclusive, Vijaykumar advises that investors should consider allocating to both as part of a well-considered asset allocation strategy, reviewing and adjusting their allocations annually to maintain their target weights.

Choosing the Right Index for Your Portfolio

The choice between the Nifty 100 and the Nifty Midcap 150 is not a one-size-fits-all decision. Both indices have demonstrated strong performance in recent years, with the midcap index showing higher growth potential, particularly over the long term. However, the Nifty 100 offers more stability, making it a better choice for conservative investors.

Ultimately, investors should consider their risk tolerance, investment horizon, and financial goals when choosing between these indices. A balanced portfolio that includes exposure to both indices may provide the best mix of stability and growth, catering to different market conditions and investment objectives.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.